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Verizon, Alltel Merger Gets Green Light

Justice Department sets conditions on mega-merger

October 31, 2008

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Verizon Wireless is poised to get bigger, as its bid to purchase rival Alltel has won approval from the U.S. Justice Department. The purchase of Alltel, which serves mostly rural areas in the U.S., comes with strings attached, however.

The Justice Department said it will require Verizon to divest assets in 100 areas in 22 states in order to proceed with its $28 billion acquisition. The government said that the transaction as originally proposed would have substantially lessened competition to the detriment of consumers of mobile wireless telecommunications services in those areas, and likely would result in higher prices, lower quality and reduced network investments.

The divestitures cover the entire states of North Dakota and South Dakota; large portions of the states of Colorado, Georgia, Kansas, Montana, South Carolina, Utah and Wyoming; and portions of the states of Alabama, Arizona, California, Idaho, Illinois, Iowa, Minnesota, Nebraska, Nevada, New Mexico, North Carolina, Ohio and Virginia.

Meanwhile, the Justice Department's Antitrust Division, along with the Attorneys General of the states of Alabama, California, Iowa, Kansas, Minnesota, North Dakota and South Dakota, has filed a civil lawsuit in U.S. District Court for the District of Columbia to block the proposed acquisition of Alltel by Verizon. At the same time, the Department and state Attorneys General filed a proposed settlement that, if approved by the court, would resolve the competitive concerns in the lawsuit. Additionally, as a part of the settlement, the Department filed to modify two existing consent decrees.

"The divestitures required are necessary to protect wireless customers and are among the most extensive required by the Department in a wireless case," said Thomas O. Barnett, Assistant Attorney General in charge of the Department's Antitrust Division.

According to the complaint, Verizon and Alltel are significant competitors and each is the other's closest competitor for a significant set of customers in 94 Cellular Marketing Areas, as defined by the FCC. The complaint alleges that the proposed transaction would substantially reduce competition for mobile wireless telecommunications services in each of these areas. The proposed settlement requires divestitures in these 94 areas to eliminate the competitive concerns.

Proposed modifications to two existing consent decrees will require Verizon to divest wireless businesses in six additional CMAs. In 1999, the Department challenged the proposed acquisition of GTE Corporation by Bell Atlantic Corporation, which now does business as Verizon, and Bell Atlantic's agreement with Vodafone to create a partnership.

The consent decree in that matter, entered in U.S. District Court for the District of Columbia, required the divestiture of mobile wireless businesses in many areas, including 25 CMAs where Alltel purchased the divested businesses. The Department, along with the parties to the Bell Atlantic/GTE/Vodafone consent decree, filed a request to modify the consent decree to allow Verizon, as a part of its acquisition of Alltel, to reacquire and retain the divested mobile wireless businesses in 22 CMAs, where competition is now sufficiently robust, and to redivest the mobile wireless businesses in three CMAs, where competitive concerns would remain.

Verizon is the second largest mobile wireless telecommunications services provider in the United States as measured by subscribers, serving more than 70 million subscribers in 49 states. In 2007, Verizon earned mobile wireless telecommunications services revenues of approximately $43 billion.

Alltel is the fifth largest mobile wireless telecommunications services provider in the United States as measured by subscribers, and provides mobile wireless telecommunications services to approximately 13 million subscribers in 35 states. In 2007, Alltel earned approximately $8.8 billion in revenues.

The transaction also is subject to review by the Federal Communications Commission.

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